Multi-dimensional Review of Lao PDR
Financing Sustainable Development
Lao People’s Democratic Republic (Lao PDR) has made significant headway on its development path over the past three decades. The country’s sustained economic growth has been led by booming commodity exports and substantial inflows of external financing. Many Laotians have seen significant improvements in their well-being. Poverty has declined as household income has increased, and many important development goals in education and health have been achieved.
In the face of macroeconomic challenges, a shift from commodity-driven growth to a more inclusive prosperity paradigm that emphasises the creation of broad-based opportunities, human capital development and green sustainability can unlock Lao PDR’s future development. This report presents priorities for overcoming the country’s current fiscal constraints and finding ways to fund this shift. Recommendations address strengthening Lao PDR’s sustainable finance and debt management, revenue generation and tax reform, investment promotion, and data capacity in order to tap into green finance mechanisms.
Generating sustainable fiscal revenue
Lao People’s Democratic Republic (Lao PDR) faces the significant challenge of raising its tax-to-gross domestic product (GDP) ratio, which remains too low despite substantial growth in per capita incomes. As a result, and without reform, Lao PDR will miss its 2025 tax revenue target. While tax policy cannot be examined in isolation from the country’s challenging macroeconomic setting, Lao PDR needs to change its approach to designing, administering and evaluating the tax system. This requires reconsidering many tax design features, such as overly generous investment tax incentives. There is also a lack of tax policy coherence across the enacted policies, and overall tax compliance remains low. In the future, the tax system should play a larger role in promoting formalisation. High-quality tax policy analysis will also be necessary in order to enact tax reforms and raise sufficient tax revenues while also promoting sustainable economic development.
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